Reading time: 4 minutes

A lease and licence agreement both allow a tenant (lessee) or licensee to use and occupy property (premises). However, there are several key differences between the two rights to occupy premises. It is crucial for parties to consider the differences between a lease and licence agreement before proceeding with any transactions involving real property. This article explains the differences between a lease and licence agreement.

Exclusive Possession

A fundamental difference between a lease and licence agreement is that only a lease can grant the right of exclusive possession to land or premises. This is where the tenant has permission to exclusively use and occupy the premises. They also have the right to exclude others from the premises (including the landlord).

For a tenant to exercise such a right, the premises must be clearly defined, enclosed and capable of being locked. The premises may include a:

  • whole building;
  • floor of a building;
  • shop in a shopping centre;
  • professional suite; or
  • room in a medical centre.

If other parties share the premises, it is not possible to grant a right to exclusive possession. Instead, a licence agreement may be more appropriate. For example, premises with a licence agreement may include co-working spaces, hairdressing salons where hairdressers rent a chair to run their own business, car-parking spaces or outdoor eating areas.

Proprietary Interest or Contractual Interest

A lease is a grant of a proprietary interest in land from a lessor to the lessee.  Therefore, the lessee gains an absolute interest in the land (the right to legally possess and receive benefits from the land). If the ownership of the land changes during the duration of the lease, the new owner must honour the lease. The lease must be registered or protected by relevant indefeasibility of title rights in the relevant state or territory legislation.

On the other hand, a licence agreement is more personal as it is between the licensor and licensee. While a lease is capable of registration with the Land Titles Office in the state or territory of the premises, a license agreement is not. Therefore, a lessee has a greater level of security in comparison to a licensee under a licence agreement.


While a licence agreement is less secure for a licensee, it is more flexible arrangement than a lease. This is because it can be terminated early with written notice. Further, adjustments can be made to the area of the premises by varying the agreement. In contrast, if you wanted to change the premises covered by a lease, you would have to surrender your current lease and enter into a new one.

Flexibility may be desirable for a licensee with changing needs. Those changing needs may include requiring:

  • early termination; or
  • more or less space throughout the term.

Retail Lease Legislation

In New South Wales, the Retail Leases Act 1994 (NSW) covers both leases and licence agreements. However, in Victoria, the Retail Leases Act 2003 (VIC) only applies to leases or sub-leases. Whether retail lease legislation covers licence agreements depends on how it defines a lease.

It is beneficial for legislation to cover both a lessee and licensee because it provides certainty and fairness. Further, the legislation sets out mechanisms for resolving disputes.

Key Takeaways

Although a lease and licence agreement seem similar, there are key differences between the two. It is vital to be aware of whether your agreement is a lease. The answer will depend on:

  • whether you have exclusive possession of the premises;
  • whether you have a proprietary interest or a contractual interest;
  • the flexibility of the arrangement; and
  • whether retail lease legislation covers your arrangement.

If you need assistance with entering into a lease or licence agreement or determining which is best for you, get in touch with LegalVision’s property lawyers on 1300 544 755 or fill out the form on this page.


Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards